Decision making under risk in agriculture

Abstract

Risk, and risk management are inherent to agricultural production. We distinguish two categories of factors influencing the farmers’ decision on risk management strategy: external and internal factors. Factors external to the farm holding include the geographic, political and climatic environment. Internal factors include personal characteristics and the farmers’ frame of reference. The presented studies in this thesis include analysis of external and internal determinants of the farmers’ risk management decision in the German region North-Rhine-Westphalia focusing on (i) effects of contextualizing experimental risk preference elicitation methods, (ii) determinants of risk management choices amongst livestock farmers, (iii) underlying motives of agritourism farmers and (iv) characteristics of diversifying farmers in the peri-urban context. <br /> Four unique case study analyses are conducted. First data collected from agricultural students is used to explore effects of contextualization in experimental risk preference elicitation methods. Second, data collected from livestock farmers is used for a holistic analysis of determinants of risk management choices. Third, agritourism and non-agritourism farmers are interviewed to explore underlying motives of farmers engaging in agritourism activities, and to find distinguishing farm, farmer and household characteristics of both groups. Fourth, data from farmers in the Ruhr-metropolitan area are collected to analyze their diversification decisions in the peri-urban context. The collected data is analyzed using econometric methods.<br /> The results show that contextualization of experimental risk preference elicitation methods decreases misspecifications, and improves obtained data quality. Furthermore, the analysis of farmers’ behavior under risk show that the individual farmer’s frame of reference (i.e. risk preferences, perception and past experiences) determines the choice of risk management strategy. Additionally, results show that proximity to urban agglomerations incentivizes farmers to engage in on-farm, non-agricultural diversification. Farmers’ decision to diversify is found to be opportunity driven, leading to the conclusion that improved information with regards to existing and new innovative diversification channels in the farming context is essential to improve rural development.